London s West End: Half Year Review and Outlook

London s West End: Half Year Review and Outlook JANUARY - JUNE 2013

Overview and Outlook Following a momentous 2012, when the Queen s Jubilee and the 2012 Games placed London firmly in the world s spotlight, there was a danger that 2013 would be an anti-climax. However, visitor, spend, and trade data for the first half of the year suggests that London, and specifically the Core West End, continues to thrive, and is successfully capitalising on the Olympic legacy. Both visitor numbers to London, and visitor spend have shown steady growth in the final quarter of last year and the first quarter of this year. Encouragingly, whilst the core markets of Europe and North America showed growth, the most significant impetus has come from the rest of the world. Chinese visitor numbers were up by over a third, and Chinese spend now accounts for 1 in every 5 of VAT free spend in the Core West End. Sales for both the Heart of London Business Alliance (HoL) Food & Beverage Index and New West End Company (NWEC) Retail Sales Index were up by almost 5% in the first half of the year. This is partly as a result of the strong visitor numbers, but also a reflection of the generally more upbeat mood of London and the UK, as the economy reaches recovery velocity. The second quarter in particular saw strong sales growth, reinforcing this trend. Major events and traffic free shopper days have continued to create reasons to visit, with West End LIVE attracting over half a million people over the weekend. The appeal of the Core West End to retailers and investors alike remains strong, and is anticipated to strengthen further, on the back of continued economic growth and tourism. Looking forward, the Core West End looks set to benefit further from the uplift in the economy, the easing of the Eurozone crisis, and growing demand from the world s tourists. The cultural and heritage offer, continual public realm improvements, and strengthening tenant line-ups (reflecting the latent occupier demand for space) together point to a healthy outlook for the Core West End. Heart of London Business Alliance and New West End Company Areas COPYRIGHT JONES LANG LASALLE IP, INC. 2013. All Rights Reserved 1

Tourism and Footfall London Overseas Visits (source: London and Partners) London has successfully avoided the post Games hangover seen in other host cities. In the six months following the 2012 Games, visitor numbers to London were nearly 7% higher (9% growth in Q4, and 4% growth in Q1). London s core European market trended 3% higher in Q1, and it was a similar growth picture for North America. The biggest increase (10%) in visitors came from other markets outside Europe and North America. Visitor expenditure was also up in Q1, with receipts at 2.1 billion, up 11% year on year. Spend from European visitors was up by 10%, North America up by 13%, and the rest of the world up by 14%. In particular, strong growth from Kuwait and the other Gulf States, and from India and South Korea, boosted London s coffers. West End Footfall (source: Springboard) Core West End footfall in H1 was up by 3.4%, compared with a fall of -0.6% in the UK as a whole. The Heart of London s area in particular saw strong growth, with footfall up by 6.8%. Post the 2012 Games to this summer, footfall in New West End Company s area was up by 1.4%. Oxford Street footfall was down marginally, Bond Street was up by 2.8% and Regent Street up by 8.2%. Visitor Experience Major Events (source: Heart of London Business Alliance, New West End Company) West End LIVE, an event held in Trafalgar Square in June, attracted over 500,000 people to the area across the weekend. Heart of London supported the event by funding a large screen which showed the live performances in Leicester Square. 95% of visitors thought the event was good or very good, whilst there was a 50% increase in the number of respondents who were intending on visiting a bar, pub or restaurant in the area across the weekend. In July, Regent Street hosted Summer Streets traffic-free days, with four themes for shoppers to experience over four Sundays. It was estimated that 1.9 million people visited Regent Street for these events. Visitor Perception (source: Heart of London Business Alliance, New West End Company) The general perception of the Core West End continues to be positive, especially in relation to the vibrancy of the area. This perception is being helped by Team London Ambassadors (the volunteers who were the friendly face of the 2012 Games) being back in action at key locations around the capital over the Summer. The Team London Ambassadors are based at a new mobile Pop-up-Pod, located next to Piccadilly Circus underground station, and at various locations along Oxford Street. Although the general perception continues to be positive, a recent survey on Oxford Street revealed that, whilst it is very much seen as the heart of London, and seen as a vibrant, buzzing and atmospheric location, it is also seen as busy, congested and overcrowded. Ongoing public realm improvements at the eastern end of Oxford Street are needed to alleviate some of these concerns. Public Realm (source: Heart of London Business Alliance, The Crown Estate, New West End Company) The completion of the 100m Gateway redevelopment took place in June, the first major project to be delivered as part of The Crown Estate s 500 million investment plan for St James's. The building delivers over 100,000 sq ft of office space, retail and residential space to the St James's area. In the second half of the year, a street improvement project for Waterloo Place, Regent Street St James s, Haymarket and Charles II Street, (officially known as Piccadilly Two Way Part II) will commence. This summer, Bond Street Development Group unveiled plans for up to 20 million public realm and street management improvements along Bond Street over the next five years. Crime & Anti-Social Behaviour (source: Heart of London Business Alliance, New West End Company) Total reported crime in H1 was down 14.3% in West End and Chinatown and down 4.4% in Mayfair and St James s, in comparison with 2012. Crime in the Oxford Street, Regent Street and Bond Street area has shown a reduction in the summer, with overall crime down by 27% in July compared with July 2012. COPYRIGHT JONES LANG LASALLE IP, INC. 2013. All Rights Reserved 2

Trading Performance: Shopping & Entertainment HoL Food and Beverage Sales & NWEC Retail Sales (source: Springboard) Food and Beverage sales in the Heart of London area were up by 4.5% in H1, with particularly strong growth (over 10%) in February and March. Retail sales in the New West End Company area were up by 4.8% in H1(compared with 1.25% growth in UK retail sales), driven by a particularly strong second quarter, when sales were up by almost 10%. Oxford Street sales were up by 1.1%, whilst sales on Regent Street rocketed by over 10%. Global VAT-Free Sales (source: Global Blue) Core West End VAT-free sales for H1 were up 24% on the same period in 2012, with transactions up 18%. Chinese sales increased by 37%, and now account for 20% of VAT-free sales in the Core West End. Middle East and SE Asia countries also showed strong growth, in particular Kuwait (+37%), UAE (+30%), Qatar (+44%) and Thailand (+64%). Cinema and Hotel Performance (source: Rentrak, Jones Lang LaSalle) Cinema revenues for the first half of the year were up by 8.3%, against a UK average of just over 7%. Hotel occupancy figures in London as a whole remained similar to the same period last year with revenue per available room (RevPAR) up by 0.2%. Property Demand Occupier Demand (source: Jones Lang LaSalle) Against the backdrop of constrained supply, demand from both retailers and investors for the right space in London s West End remains strong. On Regent Street, the first UK store for & Other Stories, a new H&M brand, opened its doors in March at the northern end of the street. Later in the year, J Crew will open a flagship Regent Street store, the first outside North America. On Oxford Street, the forthcoming Crossrail station continues to spur development at the eastern end of the street, with Zara, Office and Schuh all securing new stores. On Bond Street, the new flagship Chanel store opened in June. Configured over three levels, it is the largest Chanel store in the world, at over 12,500 sq ft. In particular, there is unprecedented demand from the luxury watch and jewellery brands for the prime section of the street. The lack of availability on Bond Street is continuing to fuel the ripple effect, which is now resulting in the developing streets becoming established as destinations in their own right, such as Dover Street, Conduit Street, Albemarle and Mount Street. Most recently, on Conduit Street, Christian Dior has acquired 16 Conduit Street, joining John Varvatos, who acquired the former Belstaff store earlier in the year. Looking forward, it is anticipated that the appeal of the West End to retailers and investors alike will strengthen further, on the back of continued economic growth and tourism. US brands, such as Lululemon and West Elm (Williams-Sonoma), are poised to land in London with new stores in late 2013. In addition, Tiger of Sweden is soon to open on Piccadilly, and Cath Kidston is due to open a new three storey flagship store in December, also on Piccadilly. Demand for restaurants, bars and clubs in the West End remains fierce, with Angela Hartnett signing for a new restaurant in St James's, and Philipe le Roux's Villandry opening later this year in Waterloo Place. Take-up of West End office space was strong in the first half of the year, driven by healthy take-up from the service sector in Q2. Overall demand at the end of Q2 was up 13% year-on-year, and dominated by larger space requirements. Investment Demand (source: Jones Lang LaSalle) The number of retail investment transactions in H1 has reduced on the same period last year, as a result of fewer opportunities available in the market, rather than weakening investor demand. Following forced asset sales and agreed consensual sales during 2011/12, in general, those investors who remain in control of their ownerships do not need to sell. Furthermore, due to the lack of available stock at present, reallocating capital receipts within the West End retail sector is difficult. Due to this market disparity, yields have compressed by a further 25 basis points in H1 on the main retailing streets. In the office market, limited supply of stock is continuing to restrict investment volumes. However, investor demand remains very strong, and this trend is expected to continue into the second half of 2013. COPYRIGHT JONES LANG LASALLE IP, INC. 2013. All Rights Reserved 3

Contacts Jones Lang LaSalle Retail Jones Lang LaSalle Hotels Heart of London Business Alliance Guy Grainger Chief Executive Officer - UK Tel: +44 (0)207 318 7824 guy.grainger@eu.jll.com Mark Smith Head of Central London Agency - Retail Tel: +44 (0)207 318 7839 mark.smith2@eu.jll.com Martin Thomas Head of Central London Lease Advisory - Retail Tel: +44 (0)207 318 7802 martin.thomas@eu.jll.com Richard Brown Director Central London Retail Investment Tel: +44 (0)207 318 7818 richard.brown@eu.jll.com James Brown Head of EMEA Retail Research and Consulting Tel: +44 (0)203 147 1155 james.brown@eu.jll.com Colin Burnet Director EMEA Retail Research and Consulting Tel: +44 (0)203 147 1185 colin.burnet@eu.jll.com Jonathan Hubbard Chief Executive Officer Northern Europe Hotel & Hospitality Group Tel: +44 (0)207 399 5530 jonathan.hubbard@eu.jll.com Jones Lang LaSalle Offices Jonathan Evans Director West End Agency Tel: +44 (0)207 399 5950 jonathan.evans@eu.jll.com Julian Sandbach Director West End Investment Tel: +44 (0)207 399 5973 julian.sandbach@eu.jll.com Sarah Porter Chief Executive Tel: +44 (0)207 734 4507 sarah.porter@heartoflondonbid.co.uk New West End Company Richard Dickinson Chief Executive Tel: +44 (0)207 462 0680 richard.dickinson@newwestend.com m Copyright Jones Lang LaSalle IP, Inc. 2013. This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any accuracies so that we may correct them. Jones Lang LaSalle does accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication. www.jll.co.uk